Handbook chapter: “Inflation Targeting”

Handbook chapter: “Inflation Targeting,” in Friedman, Benjamin M., and Michael  Woodford, eds., Handbook of Monetary Economics, Volume 3b, chapter 22, Elsevier.
Chapter. Paper.

Inflation targeting is a monetary-policy strategy characterized by an announced numerical inflation target, an implementation of monetary policy that gives a major role to an inflation forecast that has been called forecast targeting, and a high degree of transparency and accountability. It was introduced in New Zealand in 1990, has been very successful in terms of stabilizing both inflation and the real economy, and as of 2010 has been adopted by about 25 industrialized and emerging-market economies. This chapter discusses the history, macroeconomic effects, theory, practice, and future of inflation targeting.

JEL classification: E52, E58, E42, E43, E47

Keywords: Flexible inflation targeting, forecast targeting, optimal monetary policy, transparency